UAE real estate to continue downward adjustments in 2018

UAE real estate to continue downward adjustments in 2018
The residential as well as retail sector are seeing a trend of community living and low-to-mid-rise developments gaining traction

David Godchaux, chief executive of Core Savills, discusses what’s in store for the property market in 2018
What were the notable residential launches in 2017?
A2017 was a busy year with several project launches in Dubai: Bluewaters, La Mer, Vida Za’abeel and Downtown, as well as towers on the Dubai Creek, Emaar’s Dubai Hills and Belgravia. Several residential deliveries took place in Abu Dhabi, including Al Jazeera Tower on the Corniche and the C34 residential tower in Saraya.

What is your outlook for the residential sector in 2018?
We expect the market to weather similar challenges as it did this year, with further downward adjustments in rents resulting in yield compression across a number of areas. Although rents are likely to continue decreasing as the next cycles of lease renewals lead to further relocations, the rate of decline is expected to decelerate over 2018. Sales price movements are more complex, with a few areas sustaining flat levels and others continuing their downward trend.

What trends will characterise the residential sector?
The residential as well as retail sector are seeing a trend of community living and low-to-mid-rise developments gaining traction. Developers are responding to this demand, particularly in the affordable segment with cost-effective low-rise construction favoured – take Remraam and the upcoming Nshama Townsquare schemes. The same trend of low rise is also seen in the One Central office development in Dubai World Trade Centre district and the Dubai International Financial Centre.

How will the office sector perform next year?
The prime office market has been outperforming the overall real estate landscape over the last few years. However, the pace of upward movement is expected to moderate as upcoming stock adjusts with new prime stock anticipated to exceed Grade B supply for the first time in 10 years. The secondary office market continues to lag due to the large amount of existing and upcoming stock.

Which projects will alter the office market?
Emirates Towers Business Park in Dubai is likely to be one of the most critical developments to the office market as it will add over 6 million square feet of mixed-use stock. The Dh5 billion district will further strengthen the area as a global financial hub and absorb some of the underlying demand for the core DIFC district. The ICD Brookfield Place scheme is set to be completed in 2018.
What are the three main market risks for 2018?
Developers’ margins may shrink to below viable levels as they compete on sales prices instead of adjusting supply volumes. This is particularly dangerous in the affordable segment. Yield compression is expected across residential markets, though the reasons for this differ widely segment-by-segment and will create a misleading impression of stability. Office market investment commoditisation is under way, with Reits becoming more popular – not a risk but a driver of competition.

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